STATE OF CALIFORNIA

Public Utilities Commission

M e m o r a n d u m

April 17, 2008

Office of Governmental Affairs (OGA) - Sacramento

Subject:

AB 2820 (Huffman) - Renewable energy resources.

As Introduced: February 22, 2008

LEGISLATIVE SUBCOMMITTEE RECOMMENDATION: OPPOSE UNLESS AMENDED

SUMMARY OF BILL:

AB 2820 would require an electrical corporation to deliver renewable power generated by a "local public agency" (generally, city, county, or special district) to any local public agency designated by the local public agency owning the generation.

The bill states that deliveries under AB 2820 are not to be considered "direct transactions" and are not to be subject to the rules, orders, or tariffs implementing direct access established by the California Public Utilities Commission (Commission). However, this bill would create a special category of wheeling, applicable to renewable-fueled electricity generated by a public agency and delivered to another public agency, and may inappropriately limit the scope of future Commission actions with regard to direct access transactions. Deliveries on behalf of a local public agency would be subject to a new transmission and/or distribution tariff to be filed at the Federal Energy Regulatory Commission (FERC), as well as standby charges, the Department of Water Resources (DWR) and departed load surcharges as applicable.

SUMMARY OF SUPPORTING ARGUMENTS FOR RECOMMENDATION:

AB 2820 appears to create a new class of firm transmission rights and it could be interpreted as granting preferential access to utility-owned transmission systems for municipally-owned power generated by renewable facilities. As such, it conflicts with the reformation of transmission operations and pricing embodied in the California ISO's Market Redesign and Technology Upgrade (MRTU) initiative. AB 2820 runs counter to the direction of the CAISO, which is to phase out the existing hodgepodge of firm transmission access rights. It could also encourage the unwarranted expansion of publicly-owned utilities, to the detriment of adjacent investor-owned utilities and their ratepayers.

SUMMARY OF SUGGESTED AMENDMENTS:

Amend the bill to clarify that: "Deliveries of renewable power under provisions of this act shall not have priority over other uses or users of utility transmission and distribution grids. Such deliveries shall be subject to the provisions of the California ISO's Market Redesign and Technology Upgrade (MRTU) initiative, when it becomes effective."

DIVISION ANALYSIS (Energy Division):

· AB 2820 states: "Every electrical corporation that owns and operates transmission and distribution facilities that deliver electricity at one or more locations to a local public agency shall, upon request by a local public agency, and without discrimination or delay, use those facilities to deliver renewable electricity generated by a local public agency." This language appears to create a new class of firm transmission rights in which renewable-fueled electricity generated by a public agency and delivered to another public agency would have superior transmission access rights to other transmission users.

· AB 2820 as written could be interpreted as conflicting with ongoing efforts to promote nondiscriminatory access to the electric grid. The California ISO is in the process of implementing a major reformation of transmission grid operations and pricing, termed the Market Redesign and Technology Upgrade (MRTU)1 initiative. The purpose is to improve the efficiency of transmission operations and facilitate a smoothly functioning market for electricity.

· By setting municipal owners of renewable generation as a special class with preferred transmission access rights, AB 2820 potentially confers an additional economic advantage on publicly-owned utilities, and could therefore lead to additional municipalization, which is often to the detriment of remaining investor-owned utilities and their ratepayers.

· Existing state and federal law grants municipal utilities access to investor-owned utility transmission and distribution grids, on a nondiscriminatory basis. Grid owners are not permitted to operate in a manner that impedes the ability of public agencies (or any other grid user) to deliver renewable (or nonrenewable) electric power. Therefore, AB 2820 is unnecessary, because there is no existing problem in connection with transmission access by the "local public agencies" (whom this bill is ostensibly intended to benefit) that requires a legislative solution at this time.

PROGRAM BACKGROUND:

· Historically, access to the grid has been subject to firm rights granted by contract to certain municipal utilities. Such contracts are being phased out and firm transmission access rights are not being renewed as contracts expire. The CAISO's MRTU initiative is intended to provide nondiscriminatory access to all users of the electric grid. By setting municipal owners of renewable generation as a special class with preferred transmission access rights, AB 2820 appears to conflict with the direction and intent of MRTU.

LEGISLATIVE HISTORY:

Similar bills have been introduced this year proposing various "feed-in tariffs", crediting mechanisms, or generation aggregation.

o AB 1714 (Negrete McCleod), as currently drafted, would codify a feed-in-tariff similar to the Commission's recent AB 1969-implementing decision for up to 4MW projects. It would require publicly-owned utilities (POUs), effective 1, 2009, to make a renewable energy FIT available to its customers for facilities up to 4 MW as well (up to a statewide capacity of 240 Mw) in capacity at a base rate established by the Commission with adjustments by the POUs for the environmental and system benefits of renewable energy. The Senate Energy Committee passed SB 1714 (with significant amendments that are not yet in print) on April 15, 2008 (Vote: 6-1).

o AB 1807 (Fuentes) would require electrical corporations to offer feed-in tariffs to renewable electric generation facilities with effective generating capacities more than 1.5 MW and not more than 20 MW.

o AB 1920 (Huffman) seeks to allow the net energy metering of excess kWhs produced by solar energy systems funded by the California Solar Initiative and to incentivize the installations of solar energy systems beyond which is required to meet their on-site needs.

o AB 2466 (Laird) is similar to the intent of AB 2820 but with a different approach. The bill would allow local governments to count renewable production at one site against the energy usage of other sites under their control through a form of net-metering account aggregation.

FISCAL IMPACT:

The bill would have a fiscal impact of approximately $100,000 for:

o One staff analysis (half time) to monitor and participate in new FERC proceedings.

o One PURA IV position (up to one-half time) to perform the require functions.

STATUS:

On April 7, 2008, the Assembly Committee on Utilities and Commerce passed AB 2820 to the Assembly Natural Resource Committee where it is awaiting a hearing.

1 As stated in the December 21, 2007 CAISO FERC tariff: "The MRTU Tariff is the product of more than seven years of study, analysis, stakeholder input, coordination with state authorities, and [Federal Energy Regulatory] Commission guidance to address structural flaws in the CAISO's electricity markets and to develop an improved infrastructure for the CAISO's markets and operations. As the [FERC] Commission has recognized, the CAISO's MRTU initiative fixes flawed market rules that contributed to the 2000-2001 Western energy crisis, brings greater transparency to prices, improves congestion management, provides for resource adequacy, enhances market power mitigation, and streamlines the CAISO's daily operations. The MRTU Tariff will provide substantial benefits to customers not only in California but across the Western Interconnection. This [MRTU] tariff reflects the [FERC] Commission's guidance in a series of more than 30 orders going back to the year 2000 providing guidance to the CAISO and stakeholders on the MRTU design."